3 Reasons Why You're Still in Debt

You feel like you've been working to pay off your credit cards forever, and yet each statement seems to have a higher balance than the last. It's enough to tempt you to break out the credit card for some retail therapy — even though you know that's just going to make the whole situation worse. Why can't you seem to get any traction with your debt payoff? (See also: The Worst Ways to Pay Off Credit Card Debt)

As it turns out, your difficulty is not entirely your fault (although you're not totally off the hook, either). There are some deep-seated psychological reasons why digging yourself out of debt is so arduous. Here are three reasons why you haven't made more progress — and what you can do to become debt-free.

1. Creditors and Marketers Have Your Number

When we look back on the housing crisis of 2008, it's very easy to be scornful of the thousands of borrowers who took on far larger mortgages than they could possibly handle — let alone those borrowers who didn't even completely comprehend the details of the ARM loans they signed up for. And it certainly is reasonable to expect borrowers to know (and stay within) their own limits. (See also: Psychology and Loans: Why You Make Bad Decisions)

However, a lender's job is to make sure they sell as many loans as possible for the biggest profit possible. It's in their best interest to get you into bigger loans, so they offer many temptations to make sure you do exactly that. Behavioral economist Dan Ariely described it this way in an interview with Steve Rhode, the "Get Out of Debt Guy":

You can say if somebody took a bigger mortgage than they could reasonably repay, whose fault is it? And in the real world you're a big boy. You can decide what you do… but I think it's not like that exactly. If I put here a plate of fresh donuts and I pump the smell of fresh baked goods into this room, odds are you'll be tempted. And odds are you'll be tempted even if you don't want to. And I should accept some of the responsibility for that. And people who sell credit and give mortgages are trying to tempt people to take too much.

Whether the debt you are struggling to repay is from a too-large mortgage, a student loan, a car loan, or credit card debt, there was someone you encountered at some point in the process whose job it was to tempt you and convince you take on more debt. And while that does not excuse you from making a poor debt decision, it is important to remember that such tempters get to hone their skills with years of practice on people just like you. You only have to make one mistake to be mired in debt.

Basically, if you've been feeling like the system is rigged against you, that's because it is.

But what if instead of thinking about all the wonderful experiences you'll have in your new car, you focus on the person selling it to you? What's in it for them, anyway? Why do they care so deeply about your ability to wipe the smirk off your overbearing brother-in-law's face?

The truth of the matter is that they don't care about you. To them, you're just a customer (or in extreme cases, a mark), and anything they tell you about how wonderful your life will be if you sign on the dotted line should be regarded with suspicion. They're trying to make a deal, and your bad decision won't impact their life in any way.

Once you start viewing sales professionals through this paranoid lens, it becomes much easier to avoid the temptations that can lead you into poor debt decisions.

But the connection between depression and debt can even go deeper than that vicious cycle. Apparently, depression makes you more prone to see the world as it really is — which can make it more difficult to dig yourself out of debt. According to Dan Ariely:

There are some results showing that people who are depressed actually see reality more correctly. All of us have what's called an optimism bias. We think we're a better driver than average. We think we're probably better investors than average. We're less likely to die of a heart attack. We are overly optimistic. There are some results showing that depressed people are actually more accurate.

Basically, all of those black-cloud-over-the-head pessimists out there who prefer to describe themselves as "realists" are correct. They have a clearer view of how the world actually works.

In the case of debt, if you are depressed, then it's likely that you are able to see very clearly just how long and slow a slog it will be for you to get back into the black. Your cheery brethren may assume that things will go more quickly or smoothly, just because of the optimism bias. But since you see the world without the benefit of rose-colored glasses, you know that you're in for a long and an unpleasant grind. And recognizing that reality makes it that much harder to get started.

The Fix: Set Mini-Goals

If you have a tendency to react to the world (and your finances) like Eeyore, then it's a good idea to break down your huge debt payoff into smaller pieces. That's because a realistic view of the world can still lead you astray. Those without the optimism bias may be more accurate when looking at the reality of what debt payoff will look like, but they still tend to think that making the last payment will never happen, which is simply not true.

3. You Overthink the Problem

After decades of absorbing the lessons of daytime talk shows, most of us would agree that the most important step in fixing a psychological issue is determining the roots of that issue. Without really digging into the reasons why you feel the need indulge in hundreds of dollars of retail therapy each week, you'll never fix your problem with debt.

So, before you do anything else on your debt repayment journey, you sit down with an expert of some kind — a therapist or a personal finance coach — and try to figure out what is driving your intense need to buy buy buy. As you delve deeply into your own psyche, you may find that you understand yourself a little better — but you haven't actually stopped overspending.

The problem? Just because you know the root of the issue doesn't mean you can stop the problem itself. According to Dan Ariely:

When you teach people questions about why [they struggle with debt], the issue is will they use [their new knowledge] every time? And you don't need to fail a lot to fail enough to devastate yourself. So think about something else like texting and driving. If you know the principle you may do it less. But if you do it even once you can kill yourself or other people. Whereas, it's hard to assume that people would think about [the roots of debt or why texting and driving is dangerous] all the time. People have other things to worry about.

This is most certainly an issue that is easier to see in other circumstances, such as addiction. For instance, an alcoholic may need to get to the root of their psychological dependence on alcohol — but figuring out the psychology needs to take a back seat to simply getting away from the temptation. After all, a single drink could be disastrous, even if you know exactly why you are doing it.

The Fix: Make Your Decisions Ahead of Time

Digging into the reasons behind your problem with debt is certainly a good use of your time. But it should not be part of how you actually deal with your current debt problem. What you need now is a rigid framework that will tell you exactly what to do and when. Then, you take choice out of the equation, meaning you never have to rely on willpower, when you know that you just can't say no to another trip to the mall. (See also: How to Replace Bad Habits With Good Ones)

For instance, switching to a cash-envelope system makes it impossible to spend money you do not have. There is no agonizing over whether you can afford just one more charge on your card. There is no need for you to rely on willpower. Your decision has already been made for you.

Another common suggestion for creating such a decision framework is to come up with if… then statements about your temptations. For instance, an alcoholic may say: "If someone asks if I want a drink, then I'll order a club soda." An overspender might decide "If my friends ask me to the mall, I'll invite them over to my house to play cards instead." Again, this means that the decision has already been made and there is no moment of choice or hesitation.

The New York Times describes these strategies as using behavior modification rather than willpower. Basically, if you establish habits that take away the necessity of choosing, then you keep more of your mental bandwidth available for other issues. That way, you make the reasons behind your debt unimportant.

The Money Mind Game

Avoiding debt is pretty simple. We all know that we should be spending less than we earn, saving up for big purchases, and sending more than the minimum payment to our loans. The difficult part is getting around our own psychological hang-ups and quirks. But once you recognize just how your brain can lead you astray, it's easier to put in place the habits and responses that will get you where you need to go.

Do any of these reasons ring true for you and debt? What's making it hard for you to pay it off?